2. The naysayers are wrong. There's a very strong case against S & P.
S&P's attorney, Floyd Abrams, took to the court of public opinion to defend his client on CNBC. Abrams argued that everybody believed these mortgage-backed securities were good, including Treasury Secretary Hank Paulson and the Federal Reserve.
But Standard & Poor's sells a technical service. It isn't paid all that money to repeat the conventional wisdom. And yet, within a year, Standard & Poor's was forced to downgrade many of these "AAA" investments to junk status. Apparently one of their key lines of defense will be: We weren't crooked, just incompetent.
Besides, it isn't true that "everybody" believed these investments were strong. Did Standard & Poor's conduct any research into the work of the many economists who publicly said there was a housing bubble, as it continued to give these investments a "AAA" rating? I think we know the answer to that one.
The "incompetence" defense also fails to address the many emails and internal documents showing that sales, not accuracy, was the organization's prime concern.
Abrams flirts with, but doesn't embrace, the right-wing argument that this lawsuit is driven by revenge against S&P for downgrading the Federal debt. But that downgrade didn't weaken the government's ability to get cost-free loans, so there was no harm. And that was two years ago, which would make this a very delayed act of revenge.
Abrams and S&P are also trying to defend its actions on First Amendment grounds, claiming that they're journalists. Other agencies have tried this defense. But journalists aren't "agencies." They're not given the authority to rate something, with billion-dollar implications. If these agencies were journalists, they'd have no product to sell.
A skeptical piece about the lawsuit from Peter J. Henning and Steven M. Davidoff in the New York Times also misses the mark. They write:
"The government will have to prove that ratings were in fact faulty, and published intentionally so as to deceive investors in the securities. In response, S&P could simply argue that the company was just as blinded by the financial crisis as anyone else, and that questionable e-mails are simply the work of lower-level employees who were not involved in the decision-making."
This is Abrams' "nobody saw it coming" argument. But that's not what the government is alleging. The lawsuit shows that S&P claimed to have internal quality control standards, objectivity, and rigid methodology, that it made those claims in order to make money -- and that it knew these claims weren't true.
The issue isn't whether S&P was as "blinded" as everyone else. The issue is whether it lied when it claimed to have better vision.
3. Political pressure works.
This lawsuit might never have been filed if it had not been for the hard work of Sen. Levin's Subcommittee.
And it might not have been filed, or the government might have settled for a smaller fine, if there hadn't been so much public demand for a tougher stand against those who brought down the economy.
Finally, there's a case where the government wouldn't settle for peanuts. That's a pleasant surprise. It also shows that political pressure -- whether from elected officials or the public at large -- works.
4. Civil cases are important.
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